Economics (AS & A Level) · Oct / Nov 2024 · Paper 21 · Question 1

Inflation in Argentina Argentina’s annual inflation rate increased from just over 40% in February 2021 to just over 50% in January 2022. Argentina’s annual inflation rate, as measured by changes in the consumer price index (CPI) over 12 months is shown in Fig. 1.1. 40.7 42.6 46.3 Apr 2021 Jul 2021 Oct 2021 Jan 2022 48.8 50.2 51.8 52.1 51.2 50.9 50.7 52.5 51.4 40 42 44 46 48 % 50 52 54 Source: tradingeconomics.com, 19 October 2022 Fig. 1.1 Annual rate of inflation in Argentina, February 2021 to January 2022 Argentina has the fifth highest inflation rate in the world after Venezuela, Sudan, Suriname and Zimbabwe. It is forecast to continue to rise during 2022 to reach an annual rate of between 55% and 58% by the end of the year. One of the main reasons for this high rate of inflation is excessive growth of the money supply. The need to lower the rate of inflation in Argentina is considered essential by many economists. The government of Argentina has tried to control the increase in the rate of inflation by imposing maximum prices on 1432 products. This has the advantage of limiting price increases, but such a policy can also have a number of disadvantages. One such disadvantage is the creation of excess demand in markets. Another policy has been to increase interest rates. In January 2022, Argentina’s central bank raised its main interest rate from 38% to 40%, but many economists argued that this increase was insufficient to control inflation. This is because the real interest rate will be negative. A more appropriate monetary policy would be to lift the interest rate above the inflation rate so that the real interest rate will be positive. Source: Adapted from: Buenos Aires Times, 15 February 2022

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